Completing Schedule E for SMLLC as a disregarded entity

[dtlee]

I am seeing this more frequently and am wondering if I am doing things correctly.

Each LLC has its own EIN and each taxpayer has their own SSN as their Tax ID. This makes a bit of sense on Schedule C where there is a Taxpayer ID and also a place for an EIN. I have always assumed that this was a way for the IRS to tie the EIN with the taxpayer so that there is some link. However, Schedule E does not have a place for that. Is this going to cause problems when an owner of a property issues form 1099 in their EIN and then deducts it as an expense on Schedule E?

Likewise, in order for it to be a Single Member LLC and treated as a disregarded entity, the Schedule E would need to be filed for an individual taxpayer. If a married couple decides to rent a property, they can usually file the Schedule E jointly, but my understanding is that an LLC cannot be formed for a Qualified Joint Venture (they are not in a community property state) without them first forming a partnership to run their jointly owned Schedule E rental property under an LLC.

If they were to decide to jointly own the property and have an LLC and decide to form a partnership but they have already formed the LLC in one spouse's name, will they need to then create a new LLC for the partnership or can they somehow convert their existing LLC to be for their partnership?

I realize the IRS will not give them any grief if there is interest earned that is not in their name but in the name and Tax ID of the LLC, but what if that interest has federal tax withholding? Should I combine it with their other withholding on the line for withholding on a 1099? Is there a way to indicate that this was paid to another form of the same taxpayer? Like I said, there is no way that the LLC EIN is linked to either taxpayer when the information is reported on Schedule E, but I might be wrong about the IRS being wise enough to use the information this way if it were on the Schedule C.

Thanks for any thoughts or suggestions on handling these.

[Uncle Sam]

If you go to the Schedule E Rental Property input screen, on the right side are fields for State Use Only where you are able to enter the EI#
But in looking at the 1040 form again, I would report Federal withholding on Form 1040, line 25b

[dtlee]

Thanks, U.S.

Would you just include the withholding on the normal line for a 1099 on the 1040 or would you use Schedule 3, Line 13z?

[Uncle Sam]

Which type of 1099 was issued?
In absence of specific instructions to the contrary, yes I would use Schedule 3, Line 13z

In looking at Form 1040 again, there's a specific line for 1099 Federal withholding - line 25b - that would probably be better.

Payments Federal income tax withheld from: a Form(s) W-2 . . . . . . . . . . . . . . . . . ...... 25a
Form(s) 1099 . . . . . . . . . . . . . . . . . . .................................................. ............................25b

[Gretel]

Your part about the conversion to a MMLLC, typically you have to file amended Articles with the State and get a new EIN to file as partnership.

[dtlee]

@U.S. it is a 1099-INT
That line you refer to is the line it normally goes to. I expect he IRS will simply subtract it from his withholding since it has some other tax I'd. Do you think they somehow will link it to the taxpayer? I was thinking 13z because it is an odd situation.

@Gretal. I had a feeling it would be something like that.

Thanks all

[Uncle Sam]

From the instructions:

Line 25b—Form(s) 1099 Include on line 25b any federal income tax withheld on your Form(s) 1099-R. The amount withheld should be shown in box 4. Attach your Form(s) 1099-R to the front of your return if federal income tax was withheld. If you received a 2023 Form 1099 showing federal income tax withheld on dividends, taxable or tax-exempt interest income, unemployment compensation, social security benefits, railroad retirement benefits, or other income you received, include the amount withheld in the total on line 25b. This should be shown in box 4 of Form 1099, box 6 of Form SSA-1099, or box 10 of Form RRB-1099.

[Uncle Sam]

From the instructions:

Line 25b—Form(s) 1099 Include on line 25b any federal income tax withheld on your Form(s) 1099-R. The amount withheld should be shown in box 4. Attach your Form(s) 1099-R to the front of your return if federal income tax was withheld. If you received a 2023 Form 1099 showing federal income tax withheld on dividends, taxable or tax-exempt interest income, unemployment compensation, social security benefits, railroad retirement benefits, or other income you received, include the amount withheld in the total on line 25b. This should be shown in box 4 of Form 1099, box 6 of Form SSA-1099, or box 10 of Form RRB-1099. (Emphasis - mine)

[Uncle Sam]

From the instructions:

Line 25b—Form(s) 1099 Include on line 25b any federal income tax withheld on your Form(s) 1099-R. The amount withheld should be shown in box 4. Attach your Form(s) 1099-R to the front of your return if federal income tax was withheld. If you received a 2023 Form 1099 showing federal income tax withheld on dividends, taxable or tax-exempt interest income, unemployment compensation, social security benefits, railroad retirement benefits, or other income you received, include the amount withheld in the total on line 25b. This should be shown in box 4 of Form 1099, box 6 of Form SSA-1099, or box 10 of Form RRB-1099. (Emphasis - mine)

[dtlee]

I understand (I understand. I understand.).

The thing is that his SSN is 123-45-6789 and the withholding is in the EIN of 11-2223333. I know the IRS won't like this (unless they somehow know that this is an EIN for a SMLLC associated with this taxpayer, which I doubt).

I have it automatically flowing to that line based on how I entered the 1099-INT. My problem is that it has a Tax ID not associated with anything on the tax return.

[Uncle Sam]

Then enter the interest income on the Schedule B identifying the source with EI# on the same line

[dtlee]

I have it on Schedule B that way. I am concerned about matching. They never match on the text of Schedule B.

Perhaps I should just blindly pretend I did not see it was not his interest.

It happens every day. Mom is on the account for Daughter and it is Daughter's money but the statement has Mom's Social Security Number. However, this is not interest that I am worried about. It is the withholding and how to identify it as something other than issued in his name or Tax ID.

Obviously, I am overthinking this.

[Uncle Sam]

Is there a way of entering the withholding information on a sub-screen with the entity name and EI# for line 25b?

Go to Screen 5 - line 25c - Other withholdings not reported elsewhere - click sub-screen and enter all the identifying information there

[dtlee]

That's an idea. Thanks. It is withholding (not a payment) so maybe it fits better there.

[DoubleO]

An SMLLC owner should be providing the owner’s SSN/TIN on any W9s, and not the LLC’s EIN.